21 October 2015
The Stable Global Equity Fund is an attractive and differentiated investment proposition. The Fund targets delivery of returns at or above CPI+6%, the long term return on equities, but with lower volatility and greater resilience during tough conditions.
We do this via a concentrated investment portfolio, investing solely in high quality, non-cyclical companies which can compound cash flows through good times and bad ('stable companies'). We approach these with strict valuation disciplines and a value investing mindset. We don’t believe any company is good enough to overpay for, and typically buy companies when discounting only minimal future growth.
The Fund has delivered strong returns in its first three years since inception, returning 13.3%pa comfortably higher than CPI+6% (7.4%pa) and above wider market indices - with MSCI ACWI +8.2%pa over the same period.
The pattern of returns has also been consistent with our investment strategy. During periods when markets were rising, the Fund captured 96% of the upside, but only 47% of the falls in falling market conditions.
We believe the Fund is well positioned to continue delivering on its objectives in the future. The portfolio is invested in 25 quality companies, all with highly recurring revenue streams. The quality of these companies is demonstrated by their average return on equity of 28.5%.
Despite these strengths, the portfolio is trading at attractive valuations, with price/ earnings ratios below market averages, and the free cash flow yield of the portfolio is 6.5%. This implies that our companies only need to grow cash flow in line with CPI to reach our CPI+6% objective (assuming ratings remain constant).